Social Responsibility /Ethics Learning Outcomes: To define ethics /social responsibility

1. Social Responsibility /Ethics Learning Outcomes: To define ethics /social responsibility To review 'classical' and 'contemporary' view of business ethics To consider the arguments for and against social involvement of business To review business scenarios

2. Ethics is the discipline dealing with what is good and bad and with the moral duty and obligations. Ethical behaviour is that which conforms to accepted standards of conduct. Ethical reasoning involves sorting out the principles that help determine what is ethical when faced with an ethical dilemma. An ethical dilemma is a situation or problem facing an individual that involves complex and often conflicting principles of ethical behaviour.’ Bliosi, Wendy (2005) Management and Organisational Behaviour’, pp.493 McGraw Hill

3. Definitions: “Business ethics is the study of how personal moral norms apply to the activities and goals of commercial enterprise. It is not a separate moral standard, but the study of how business context poses its own unique problems for the moral person who acts as an agent of this system.” Nash, Laura (1993) “Good Intentions Aside”, Harvard Business Scholl Press

4. 'What is the most important is that management realise that it must consider the impact of every business policy and business action upon society. It has to consider whether the action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony.' Peter Drucker, The Practice Of Management 1955, p.342 ‘The success of management…has greatly changed management’s meaning. Its success has made management the general, the pervasive function, and the distinct organisation of our society of organisations. As such, management inevitably has become “affected with the public interest.” To work out what this means for management theory and management practice will constitute the “management problems” of the next fifty years.' Peter Drucker, The Frontiers of Management 1986, pp.192-193

5. Political Influences Legal Influences BUSINESS PRACTICES Ethical Influences Competitive Influences Major Influences on Business Practices Source: Samuel, Certo & Peter (1991) Paul, Strategic Management,pp.230, McGraw-Hill

6. The Classical View The classical view purports that business should not assume any social responsibility beyond maximising profit for the owners of the firm. Management are the employees of the stockholders, the holds, and have obligations only to them. The eminent economist Milton Friedman, a proponent of this view, argues that "There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud…Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine."

7. The Contemporary View The contemporary view is that businesses, as important and influential members of society, are accountable in the maintenance and improvement of society’s overall welfare. A fervent campaigner of corporate social responsibility, Keith Davis, has enlarged on this view. It can be summarised in terms of the following five propositions:

8. Proposition 1: Social Responsibility arises from social power. This proposition is built on the premise that business has a significant amount of influence or power over such critical social issues as minority employment and environmental pollution. In essence, the collective action of all businesses determines the proportion of minorities employed and the prevailing condition of the environment. Thus, because business has power over society, society can and must hold business responsible for social conditions affected by the use of this power.

9. Proposition 2: Business shall operate as a two- way open system with open receipt of inputs from society and open disclosure of its operations to the public. Business must be willing to listen to societal representatives concerning what must be done to improve societal welfare. Davis suggests that continuing, honest, and open communications between business and societal representatives must exist if the overall welfare of society is to be maintained or improved.

10. Proposition 3: Both the social costs and the social benefits of an activity, product, or service shall be thoroughly calculated and considered in order to decide whether or not to proceed with it. Technical feasibility and economic profitability are not the only factors that should influence business decision-making. Business should also consider both the long and short-term societal consequences of all business activities before such activities are undertaken.

11. Proposition 4: Social costs related to each activity, product, or service shall be passed on to the consumer. Business cannot be expected to finance all activities that are economically disadvantageous but socially advantageous. The cost of maintaining socially desirable activities within business should be passed on to consumers through higher prices for the goods or services that are directly related to those socially desirable activities.

12. Proposition 5: As citizens, business institutions have the responsibility to become involved in certain social problems that are outside their normal areas of operation. If a business possesses the expertise to solve a social problem with which it may not be directly associated. It should be held responsible for helping society solve the problem. Business will eventually receive increased profits from a generally improved society, so business should share the responsibility of all citizens to improve that society.

13. Doing well by doing good

14. Four main reasons for considering the ethical conduct of organisations: • To some extent, inescapable, e.g. legal limits on conduct • Some areas may be important: e.g. “green” issues • Part of the professionalisation of business, e.g. treatment of workers • Self-interest, e.g. bad publicity as a result of incorrect behaviour

15. Three prime considerations in developing business ethics: • extent of ethical considerations • their cost and • the recipient of the responsibility • Numerous differences between organisations over what should be covered under ethics, reflecting fundamentally different approaches to doing business.

16. Arguments for and against Social Involvement of Business Arguments for social involvement of business • Public needs have changes, leading to changed expectations. Business, it is suggested, received its charter from society and consequently has to respond to the needs of society. 2. The creation of a better social environment benefits both society and business. Society gains through better neighbourhoods and employment opportunities; business benefits from a better community, since the community is the source of its work force and the consumer of its products and services.

17. 3. Social involvement discourages additional government regulation and intervention. The result is greater freedom and more flexibility in decision making for business. 4. Business has a great deal of power, which, it is reasoned, should be accompanied by an equal amount of responsibility. 5. Modern society is an interdependent system, and the internal activities of the enterprise have an impact on the external environment. 6. Social involvement may be in the interest of stockholders.

18. Arguments against social involvement of business • The primary task of business is to maximise profit by focusing strictly on economic activities. Social involvement could reduce economic efficiency. 2. In the final analysis, society must pay for the social involvement of business through higher prices. Social involvement would create excessive costs for business, which cannot commit its resources to social action.

19. 3. Business has enough power, and additional social involvement would further increase its power and influence. 4. Business people lack the social skills to deal with the problems of society. Their training and experience is with economical matters and their skills may not be pertinent to social problems. 5.There is a lack of accountability of business to society. Unless accountability can be established, business should not get involved.

20. Concern for Consumers      Are products safe and well designed?      Are products fairly priced?      Are advertisements clear and not deceptive?      Are customers treated fairly by salespeople? Are credit terms clear?     Is adequate product information available?

21. Concern for Employees Are employees paid a fair wage? Are employees provided a safe work environment? Are workers hired, promoted, and treated fairly without regard to sex, race, colour or creed? Are employees given special training and educational opportunities? Are handicapped people given employment opportunities? Does the business help rehabilitate employees with physical, mental, or emotional problems?

22. Concern for the Environment Is the environment adequately protected from unclean air and water, excessive noise, and other types of pollution? Are products and packages biodegradable or recyclable? Are any by-products that pose a safety hazard to society (such as nuclear waste or commercial solvents) carefully handled and properly treated or disposed of?

23. Concern for Society in general Does the firm support minority and community enterprises by purchasing from them or subcontracting to them? Are donations made to help develop and support education, art, health, and community development programs? Is the social impact of plant locations or relocations considered by the managers who make those decisions? Is appropriate information concerning business operations made public?

24. Social Responsibility Kohlberg’s Levels of Moral Development • Preconventional Level • Concern for self • Conventional Level • Consideration of laws and norms • Principled Level • Adherence to internal moral code

29. Corporate GovernanceDefined:Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.

30. Corporate Governance

31. Corporate Governance • Setting corporate strategy, overall direction, • mission or vision • Hiring and firing the CEO and top management • Controlling, monitoring, or supervising • top management • Reviewing and approving the use of resources • Caring for shareholder interests Board of Directors

32. Corporate Governance Corporate Governance relates to two main areas: • Selection and conduct of the senior officers of the organisation • Relationships of the senior officers with owners, employees and other stakeholders of the organisation • Importance relates to power given to senior officers to run the organisation • Various checks on such power: • Information relayed to stakeholders • Appointment of non-executive directors • Corporate Governance is more a matter of principles of conduct than a series of simple rules

33. Role of the Board in strategic management • Monitor • Developments inside and outside the corporation • Evaluate & Influence • Review proposals, advise, provide suggestions and alternatives • Initiate & Determine • Delineate corporation’s mission and specify strategic options

34. Board of Directors Continuum

37. At Xerox, CEO Anne Mulcahy says that corporate values “helped save Xerox during the worst crisis in our history,” and that “living our values” has been one of Xerox’s five performance objectives for the past several years. These values — which include customer satisfaction, quality and excellence, premium return on assets, use of technology for market leadership, valuing employees, and corporate citizenship — are “far from words on a piece of paper. They are accompanied by specific objectives and hard measures,” adds Ms. Mulcahy.

43. Social Responsibility Carroll’s Four Responsibilities • Economic • Legal • Ethical • Discretionary

44. Responsibilities of Business

45. References Bliosi, Wendy (2005) Management and Organisational Behaviour’, pp.493 McGraw Hill Nash, Laura (1993) “Good Intentions Aside”, Harvard Business Scholl Press Peter Drucker, The Practice Of Management 1955, p.342 Peter Drucker, The Frontiers of Management 1986, pp.192-193 Samuel, Certo & Peter (1991) Paul, Strategic Management,pp.230, McGraw-Hill Doing well by doing goodApr 22nd 2000From The Economist print edition Fliess, Barbara (2001) Better business behaviour,The Observer(OECD)October 26 By KEN BELSON,KEN (2005) WorldCom's Audacious Failure and Its Toll on an Industry, January 18,WWW.NYTIMES.COM MORGENSON,GRETCHEN (2005) Ebbers Set to Shed His AssetsJuly 1, www.nytimes.com Kocurek,Paul, Burger, Christian, and Birchard,Bill (Spring 2003) Corporate Governance: Hard Facts about Soft Behaviors, http://www.strategy-business.com/press/article/authors Journals Long Range Planning Volume 32, Issue 2, Pages 151-281 (April 1999) 1. The importance of leadership in shaping business values, Pages 166-172 Joanne B. Ciulla 2. Sources of corporate values, Pages 173-178 Simon Webley  3.Gaining the ethical edge: procedures for delivering values-driven management,Pages 179-189 Dawn-Marie Driscoll and W. Michael Hoffman 4. From promise to compliance: The development of `integrity' at SmithKlineBeecham, Pages 190-198 Ian W. Jones and Michael G. Pollitt 5.Decision making conditioned by values: case study evidence from the legalprofession, Pages 207-216 Oonagh Mary Harpur  6. Value and values: lessons for tomorrow's company, Pages 217-224Mark [Reference to Goyder]  Volume 32, Issue 1, Pages 1-150 (February 1999)  What Are The Trends in Corporate Governance? How Will They Impact Your Company?, Pages 12-19 Adrian Cadbury